Hi Shaye,
This can be a difficult question to answer in just a few sentences. What I do, is I profile my character (physically, background, family etc.) first. Then I interview my character as though they were applying for a job. Then I start incorporating their character arc into their profile. The profile and interview gives me ideas of the external problems this character will have to face throughout the story while their arc sketches out the internal problems that this character will have to overcome before she/he can achieve the story goal. For example, every character begins a story in their "normal world" as they know it believing some sort of lie. Their "normal world" reinforces that lie. The character will be forced to make choices (right or wrong) why? What happened in their past to make them make that choice? For example, my character's lie is "Mercy and Justice can not co-exist." But the practical answer is that on different spheres, spiritual vs. rational, they do co-exist. My character has to come to believe that. I could go on and on.
Hopes this helps,
Kristina